We report the first voxel-based morphometric (VBM) study to examine cerebral grey and white matter and cerebrospinal fluid (CSF) using computational morphometry in never-medicated, first-episode psychosis (FEP). Region-of-interest (ROI) analysis was also performed blind to group membership. 26 never-medicated individuals with FEP (23 with DSM-IV schizophrenia) and 38 healthy controls had MRI brain scans. Groups were balanced for age, sex, handedness, ethnicity, paternal socio-economic status, and height. Healthy controls were recruited from the local community by advertisement. Grey matter, white matter, and CSF: global brain volume ratios were significantly smaller in patients. Patients had significantly less grey matter volume in L and R caudate nuclei, cingulate gyri, parahippocampal gyri, superior temporal gyri, cerebellum and R thalamus, prefrontal cortex. They also had significantly less white matter volume in the R anterior limb of the internal capsule fronto-occipital fasciculus and L and R fornices, and significantly greater CSF volume especially in the R lateral ventricle. Excluding the 3 subjects with brief psychotic disorder did not alter our results. Our data suggest that fronto-temporal and subcortical-limbic circuits are morphologically abnormal in never-medicated, schizophrenia. ROI analysis comparing the schizophrenia group (n=23) with the healthy controls (n=38) confirmed caudate volumes were significantly smaller bilaterally by 11%, and lateral ventricular volume was significantly larger on the right by 26% in the patients. Caudate nuclei and lateral ventricular volume measurements were uncorrelated (Pearson correlation coefficient 0.30, p=0.10), ruling out the possibility of segmentation artefact. Ratio of lateral ventricle to caudate volume was bilaterally significantly increased (p<0.005, 2-tailed), which could represent an early biomarker in first-episode, never-medicated schizophrenia.